Investors Watching and Waiting for Water to Boil

The market remains a constant mix of worry and optimism. This has made for a topping formation in some sectors while others continue to march higher. We could rant about Europe, Washington and the endless debt parade, slower earnings, and an economy that is growing at a benign 2% GDP… but, would it change anything? Would we change our portfolio or just become more cynical about the markets and the world in general? The challenge for you and I as investors is the ability to overcome our emotions when everyone around us is living them in full color. To watch this daily, just turn on CNBC (the Confused Nuerotic Broadcast Company). The ramblings about what’s hot and what’s not are enough to make you scream. Bottom line, the markets are marking time to determine the next directional move. Any by market I mean you and I. After all, we are the market!

The chart below of the S&P 500 index is a clear example of watching and waiting for water to boil. The trek to the high from the October lows is challenging the May highs. The index has spent nearly three weeks pushing towards this level and we have all watched the action painfully. Technically, the chart shows a classic uptrend with the 10 day moving average showing the trend. Volume has not been impressive, but then the new norm seems to be lower volume for the broad markets. Thus, what are we waiting for? Some the clear move higher to confirm the next leg of the uptrend, others an epiphany in the data to show solid earnings growth and forward looking projections. Either way investors are stalled waiting and watching for the next opportunity.

If the index breaks higher or not it is the forward looking growth of the economy that is in question. Will there be enough evidence in place to give the necessary boost to stocks to move higher? We don’t have long to wait as the economic data for February will start later this week. Chicago PMI, ISM Manufacturing, Construction Spending, Auto Sales, Personal Incomes and Spending, and more will lead the headlines. The jobs report isn’t due until next Friday, but it will add to the data points of interest for investors. The fourth quarter GDP report in out Wednesday with expectations of 2.7% growth. Not stellar, but again, it seems to be the new norm for investors to accept slow growth as a positive for the overall stock market.

As we all watch and wait apply the old standards for growth in the economy have shifted to lower expectations. After all we have turned into a country not worried about debt inflation or over spending. After all we can just continue to print money and not worry about the longer term consequences. The current economic event is an evolution of runaway debt and excessive government controls. The headline below is just one of many that validates we have lost all perspective in dealing with responsibility both personally and as a government.

California AG seeks foreclosure suspension

There is a time to be aggressive in the markets and a time to watch and see. By the activity in the broad indexes we are at a watch and see moment of time. What we see may be scewed by what we want to believe versus what the data is actually saying. Buyers beware and manage the risk of your portfolio as this all unfolds.